The explosion of Internet activity over the past few years has created enormous growth for advertising on the Internet. The current market is however is very fragmented (many buyers and sellers who cannot find each other), inefficiencies and non-transparency exist (trading information, especially pricing information is often hidden from the participants).
The Internet operates on a client/server model. In this model, a client computer communicates with a server computer on which information resides and the client computer depends on the server to deliver requested information and services. These services may involve handling incoming and outgoing email, providing advertisements, and conducting e-commerce. Other examples of these services are searching for information and sending it back to the client (such as when a database on the Web is queried), and delivering web pages for a web site. The servers (also known as hosts) are usually more powerful computers that store the data and databases.
The web sites that make up the World Wide Web need to have unique locations so that a client computer can locate them to request services such as retrieving email, files, web pages, and other information. The unique identifier for a host computer is called an IP (Internet Protocol) address and the unique identifier for a web site (web page) is called the URL (Uniform Resource Locator). A URL indicates where the host computer is located, the location of the web site on the host, and the name of the web page and the file type of each document, among other information.
A common form of Internet advertising is known as banner ads. These banner ads are frequently seen stretching across the top of a web page. Many large sites, such as Alta Vista, Yahoo, and CNN, host banner ads. Typically, there are three parties involved in making banner advertising work.
An advertiser is someone trying to build a brand name (branders) or to sell a product or service (direct marketers). For example, the marketplace knows that Dell sells computers and Price Waterhouse sells accounting services. Advertisers develop individual ads or groups of coordinated ads called campaigns. The text and artwork comprising an ad are known as the ad copy and creative respectively. Advertisers need to have these ads distributed so that consumers will see them. For this distribution, they rely on publishers.
A publisher provides content that consumers want or need. For example, the New York Times provides news, ZDnet provides computer information, Disney's Go Network provides entertainment content. Content attracts consumers. Publishers make space available next to their content to sell to advertisers.
In this context, a consumer is anyone with Internet access, such as a web browser. A consumer visits a site to see the content provided by the publisher. While there, the consumer is attracted to an ad and clicks on it to see more information. The act of clicking normally directs the consumer's browser to the advertiser's web site, as shown in FIG. 2. There, the consumer can find information, register to get even more information, download trial software, or purchase merchandise. Advertisers get paying customers resulting from the distributed ads. Publishers get paid for their ad inventory. Consumers get content (often paid for by the advertisers).
2.1 Advertising Trading Models
In traditional advertising, there is one primary way to sell advertising space such as a column in a newspaper, a page in a magazine, a radio or television spot, or a billboard. An advertiser may buy five column inches, a quarter page, or a 30 second spot. In all cases, the space for an advertisement is bought and sold.
Internet advertising started out in much the same way. The primary space on the Internet for advertising is the impression. An impression refers to a consumer viewing an ad on a publisher's page. If ten consumers visit the same page and see the same ad, then ten impressions have been delivered. To make advertising more effective, the banner for a particular page usually rotates. This means that one of many different ads may appear each time the web page is viewed. Since the value of a single impression is small, a deal between a publisher and an advertiser may involve millions of impressions. The cost for this space is known as cost per thousand impressions or CPM. CPM rates range from just a few dollars to several dollars. However, the Internet provides a unique opportunity for trying other models of selling advertising space, and other models have already begun to emerge. Three different models are discussed below, CPM, CPA, and Inverted CPA. The following figure (FIG. 12) describes the abstract steps followed in each model, and thus highlights their differences.
2.2 CPM Model
The goal of advertisers is sales and/or branding. The goal of the publishers is to sell their ad inventory at the best price. Buying and selling ad inventory according to impressions is a legacy of traditional advertising media, where it was difficult or impossible to measure the effectiveness of the advertising. The price a publisher can charge is affected by the perceived effectiveness of the advertising. For example, publishers can say that their audience includes some number of people with some specified characteristics. These people are assumed to be likely to buy the particular product being advertised. Advertisers currently predict the effectiveness of the advertising using historical data, test marketing, and guess-work. This is then used to predict return-on-investment (ROI) and to negotiate terms with a publisher. The negotiations are complicated by inconsistencies in definition (e.g., when, exactly, is an impression considered to be delivered), and the need to qualify ad delivery by parameters including:
1. Guaranteed delivery of a specific number of impressions within a certain time.
2. Frequency (how many times a single viewer will see the ad in a certain period).
3. Location of the ads on a site and within a page.
4. Target audience specification. Note that publishers cannot guarantee that only the desired audience will see the ads to a consumer viewing an ad on a publisher. In order to have some control over their ROI in the CPM model, advertisers are forced to contractually obligate publishers to deliver their ads according to these specific parameters.
On the other hand, publishers need to estimate how much of their available inventory matches the advertiser's specifications so that they know how much to sell. This is not always easy, since the categories are overlapping. Publishers should implement tools and processes to satisfy advertisers that the requested specifications are being met. This involves choices of ad serving technology, gathering data about their audience, and organizing the layout of their pages. To maintain control over their site and audience, publishers impose constraints on advertisers regarding the size, type, and animation qualities of their creative executions. Publishers are concerned that their audience will be alienated by ads that are too distracting or slow to load.
The traditional CPM approach leads to a short-term misalignment between the interests of the advertisers and those of the publishers. Once a publisher has sold their inventory to an advertiser, they are less concerned about the effectiveness of the advertising. They have less motivation to help the advertiser be more effective. Of course, in the long run, publishers should be concerned. If the advertising on their site is continually ineffective, advertisers will be reluctant to place ads on their site.
Typically (see FIG. 12), the steps involved in the CPM buying model are:
1. The advertiser approaches publishers with a request for proposal, or a publisher approaches advertisers with a rate card. In either case, this is a proposal to do business.
2. The advertiser and the publisher negotiate on the specific terms for the deal. In all media, this is a complicated process.
3. After the deal is consummated, the advertising space is used as contracted.
4. After the advertisements appear, the advertiser pays for the delivery.
The Internet has made it easier to determine the effectiveness of advertising. The possibility of directly measuring actions and associating these actions with a particular advertisement creates a powerful mechanism for aligning the interests of advertisers and publishers. Such a model would alleviate or eliminate much of the complexity associated with the CPM model.
2.3 CPA Model
Another way for advertisers to pay publishers is on a performance basis, that is, the cost per action (CPA) model. Under this model, the advertiser only pays when the advertising generates a measurable result. Today, many CPA deals measure performance by counting the click-throughs that a particular ad generates. A few services, including the system of the present invention, measure events beyond the click, such as registrations, software downloads, and sales.
Selling advertising media on a per-action basis aligns the interests of both the advertisers and the publishers. Publishers are motivated to do whatever they can to improve the effectiveness of the advertising. This type of payment works best with direct marketers who are trying to achieve some measurable response, rather than branders who are only trying to increase name recognition.
Typically (see FIG. 12), the steps involved include:
1. A publisher offers ad space to advertisers at a particular performance rate.
2. Advertisers accept the offer.
3. The ads are run, and the performance is measured.
4. Advertisers pay for the results measured.
The CPA model shifts risk from the advertiser to the publisher. If the advertising does not work, the publisher does not get paid. The conventional CPA model does little to compensate the publisher for the additional risk. The inverted CPA model, described below, addresses this issue.